New regime for the Argentine merchant navy - Decree No 1010/2004

1. Introduction

Decree Nº 1010/2004, dated August 6, 2004 and published in the Official Gazette on August 9, 2004, abrogated Decree No 1772/91 and the decrees that had modified it and that had extended its date of expiry.

Pursuant to the recitals of Decree No 1010/2004 its regime will be "temporary and will be in force until a definitive regime has been passed that combines the interests of the shipping activity with those of the naval industry".

2. Background

Given the crisis that the merchant navy was facing as a consequence of its lack of competitiveness derived from the high costs of operating a vessel, the Argentine Government issued Decree No 1772/91 whereby it authorized Argentine vessels to be provisionally removed from the Argentinean Registry and allowed them to be registered with a foreign registry. In spite of this provision, the vessels were still permitted to traffic through the ports that were reserved for the Argentine flag, basically the cabotage traffic, the traffic through the "Hidrovía Paraguay - Paraná (Puerto Cáceres - Puerto de Nueva Palmira)" and the few international traffic ways that are still reserved. Most of the vessels that joined this regime –a great proportion of the Argentine merchant navy– kept an Argentine crew, but the legal regime applicable to their labour relationships was the regime of the flag that they adopted.

The recitals of Decree No 1772/91 stated that the regime would be provisional, until a definitive legislation regulating the Argentine merchant navy had been issued.

3. Decree No 1010/2004

Decree No 1010/2004 abrogated Decree No 1772/91 and the decrees that had modified it and that had extended its date if expiry.

Additionally, Decree No 1010/2004:

a. establishes that within two years, “flagged out” vessels must return to the Argentinean Registry;

b. stipulates that during such two year period, the new employment agreements will be governed by Argentine law and will be subject to the Argentine jurisdiction;

c. allows that within such two year period, vessels may operate on Argentine cabotage;

d. grants the treatment of Argentine flag vessel for cabotage and international sailing, communication and trading purposes to the vessels bareboatchartered by Argentine shipowners under the provisions of the decree;

e. sets leasing capacities, taking into consideration the vessels that the lessor has registered in Argentina and the vessels being built in Argentine shipyards by order of the lessor.

4. Vessels provisionally “flagged out” and their situation until they are returned to the Argentine flag within two years

Given that Decree No 1772/91 and the decrees that had modified it and that had extended its date of expiry were abrogated, the vessels that had been “flagged out” must return to the Argentine Registry.

The return to the Argentine flag must take place within two years

Until vessels are returned to the Argentine Registry, “flagged out” vessels may only operate in Argentine cabotage. For reasons beyond de scope of this article, I consider that those vessels will also be able to trade between ports of different countries located on the "Hidrovía Paraguay - Paraná (Puerto Cáceres - Puerto de Nueva Palmira)", although to avoid any inconvenience, in my opinion the authority should clarify this point when it issues the implementing regulations pursuant to section 4 of the decree.

Regarding crewmembers, their employment contracts will be governed by Argentine Law and subject to Argentine jurisdiction. This solution differs from that of Section 610 of the Argentine Navigation Law that states that the law of the flag of the vessel shall govern the employment contracts, considering that until they are returned to the Argentinean Registry, these vessels will keep their foreign nationality.

5. The bareboat charter of foreign vessels

Under Decree 1010/2004 these vessels will be treated as Argentine vessels for cabotage and international navigation, communication and trade purposes. Thus they may trade between Argentine ports as well as between ports of different countries located on the Hidrovía, and in the other traffics that are reserved for Argentine vessels and will be subject to the "provisional importation" regime.

6. Foreign vessels that cannot benefit from Decree No 1010/2004

Decree No 1010/2004 lists those vessels that are excluded from the benefits of the previous paragraph.

The vessels excluded are: (a) fishing vessels subject to the provisions of Law No 24,922 (which sets forth the Federal Fishing Regime), (b) recreational or sporting vessels; (c) vessels used for passenger or vehicle transportation, with a tonnage equal or lower than 5,000 tons; (d) vessels without self propulsion used for cargo transportation; (e) port tugboats; (f) tugboats and towboats of offshore operations, and support vessels for maritime and river traffic; (g) vessels used for technical, scientific or research activities; (h) different types of dredgers, pontoons, platforms, buoys and auxiliary sailing equipment, construction works and port works and exploration and exploitation activities; and (j) vessels used to extract sand or pebbles.

7. Vessels that may benefit from the regime set forth by Decree No 1010/2004

Vessels that are not included in the list of the paragraph above, that when they apply for the benefits of the Decree are less than 10 years old, and that have the certificates required by the Prefectura Naval Argentina, may apply for the benefits of Decree No 1010/2004.

In spite of being comprised within the list of excluded vessels, some of such foreign vessels may be bareboatchartered and be considered as Argentine vessels if the bareboatcharterer has in execution construction orders of similar vessels in an Argentine shipyard. Those vessels are mentioned in the last paragraph of chapter 6 above under sections (c), (f), (g), (h), (i) and (j) and the vessels used in support of off shore oil operations.

8. Requirements to benefit from the provisions of Decree No 1010/2004

Applicants may be individuals domiciled in Argentina, or legal entities incorporated under Argentine law. They must be registered as shipowners and must own at least one vessel in activity with Argentine flag that performs at least one transport or service operation a month, with updated certificates. As an alternative, the applicants rather than being owners of a vessel with the Argentine flag, may run a bareboatchartered ship with the Argentine flag as long as they comply with the aforementioned requirements.

A person or legal entity that does not own a ship and that is not the timecharterer of a ship with the Argentine flag, but has executed a construction agreement with an Argentine shipyard, also qualifies under the provision of Decree No 1010/2004.

The duration of the bareboat charter should not be shorter than one year and not longer than three. The applicant must not have a debt outstanding with the Fondo Nacional de la Marina Mercante.

9. Crew, management and repairs

Foreign bareboat chartered vessels that apply for the benefits of Decree No 1010/2004 must be sailed by Argentine crewmembers and their employment agreements shall be governed by Argentine law and subject to the Argentine jurisdiction.

The commercial operation of the vessel must be in charge of the shipowner that obtained the benefits of Decree No 1010/2004.

Modification and repair activities, including those for the renewal of the certificates, must be made in Argentine shipyards and work shops. The authority may allow them to be carried abroad when they are necessary for the safety of the vessel or its crew.

10. Possibility of raising the Argentine Flag

Decree No 1010/2004 allows the vessels to fly the Argentine flag during the benefit period, if that is allowed by the original registry. In order to do that, the bareboat charter must be registered with the Prefectura Naval Argentina.

11. Lease

The possibility of leasing a bareboat charter by the shipowner is subject to the restrictions established by section 15 of Decree No 1010/2004.

Shipowners may lease vessels up to 100% of the tonnage, power or cargo capacity of the Argentine vessels that they own or that they hold as lessees, in activity and with updated certificates. In other words, by complying with the rest of the requirements set forth by Decree No 1010/2004, the shipowner or the lessees of Argentine vessels may double their fleet by using foreign bareboat chartered vessels subject to the provisions of Decree No1010/2004.

The leasing capacity is 200% of the tonnage, power or cargo capacity of the units that the lessee has in construction in Argentine shipyards, or that have been built in Argentine shipyards since Decree No 1772/91 came into force and that are flying the Argentine flag. That is to say, the fleet may be trebled when one has vessels that have been built in Argentine shipyards or when having vessels flying the Argentine flag that were built after the Decree No 1772/91 came into force.

12. Sanctions

The breach of any of the provisions of the Decree by shipowners, may cause the expiration of the authorization and the consequent loss of the Argentine flag treatment to the bareboat chartered vessel.

13. Implementing regulations

It is expected that the authorities will soon issue regulations implementing the provisions of Decree No 1010/2004.